Opportunities aplenty for airport operators, global airliners in China's air travel bonanza

The thriving air travel sector in China is proving to be a veritable gold mine for carriers from Europe and North America after suffering decades of low profits.

The International Air Transport Association (IATA) estimates annual passenger numbers in China will grow by 214 million between now and 2014, including an additional 33 million overseas travelers. However, the current environment makes it difficult for global airlines to gain greater access to the Chinese market.

But that situation could change soon if new rules of engagement are formulated in China. The nation plans to build an estimated 45 new airports over the next five years - as part of a 1.5 trillion yuan ($236 billion, 174 billion euros) investment in the aviation sector. This is a unique opportunity for the aviation sector in China to team up with a wider cross-section of global players.

Forming these kinds of alliances will certainly help China make the most from of its air travel and airport building boom. By accessing expertise from overseas companies, the new airports could also implement state-of-the-art technologies and efficient operating models, which in turn leads to higher operational efficiency and better profits.

China's air travel growth is part of a regional boom after the Asia-Pacific region overtook North America as the world's largest air travel market last year. In addition, the Association of Southeast Asian Nations is working to establish a single "open skies" market between nations in the region by 2015. Such developments also offer immense opportunities for foreign carriers.

Recognizing the potential, North American carriers like United, American and Delta Air Lines added new routes to China last year, and so also European airliners like Lufthansa, Air France and KLM. More could follow, if key changes take place.

European and North American airlines fly almost exclusively to China's three largest airports: Beijing Capital, Shanghai Pudong and Hong Kong. These airports are running near peak capacity, and plans to expand them or build alternatives are still several years from completion. As a result, overseas airlines struggle to secure airport slots. It is also not easy for them to acquire landing rights in China's other airports.

For many of these airliners, it is a case of now or never. Innovative and low-cost competitors from the Gulf states, the Middle East and Asia are quickly entering the market. China's domestic carriers are also eyeing more international opportunities.

The airport expansion project in China appears to be linked to domestic airlines with very little focus on overseas carriers. So there could be instances where the rapid expansion does not automatically translate to higher profits.

But we believe that most of China's existing airports would benefit from the improvements that would come with new partnership arrangements and related investments.

As competition intensifies and the industry becomes more globalized, efficient service and operations will be key marketing tools for airports to attract overseas airlines.

For many Chinese airports, including those yet to be built, there will be challenges pertaining to operations, profitability and talent acquisition. Partnerships, especially with foreign airport management firms, can help many of them address these kinds of problems.

There are already established partnership models for others to chose from. Fraport AG - the operator of Frankfurt Airport - bought a 24.5 percent stake in Xi'an Xianyang International Airport in 2008. In 2009, Shanghai Airport Authority and the Airport Authority of Hong Kong entered into a joint venture.

By inviting such partnerships, China has the chance to build state-of-the-art airports that use the latest technologies and collaborative business models to operate more efficiently.

China could also leapfrog its peers in other areas. To address profitability and resourcing challenges, airports could use outsourcing arrangements for their finances, human resources and operations. Airports might also consider public-private partnerships for non-aviation services such as managing passenger terminals and ground handling.

Setting the right strategy for globalized operations will help China's new airports provide efficient and profitable operations that are more likely to attract European and North American airlines.

The author is managing director of Accenture's Automotive, Industrial Equipment, Infrastructure and Transportation Industry Groups for Asia-Pacific.

(China Daily 10/14/2011 page7)